Question of the Day

Whose side of the story do you believe?

George W. Bush might lose this election, not to Al Gore but, paradoxically to the Reagan Economy. At Willoughby South High School in Ohio, Dick Cheney, the Republican vice presidential nominee, explained why when he declared the good economy Americans are enjoying "was not made in Washington."

The inability of Republicans to claim credit for President Reagan's handiwork has let Bill Clinton and Al Gore pocket the political benefit of the low-inflation, high-growth economy Mr. Reagan restored to us.

Mr. Cheney was making a good point when he told his audience our good economy came not from Washington, but from the hard work and risk-taking of American men and women, who created new products with new technologies.

But American men and women did not deliver a 20-year expansion when tax rates were 70 percent on investment income. Americans did not produce a good economy when tax rules prevented them from depreciating capital equipment before inflation destroyed the real value of the depreciation allowances.

Mr. Cheney should have said that our good economy started 20 years ago when President Reagan put a stop to the class warfare that had hamstrung the American economy with high tax rates and depleted the economy of incentives. The result of the Democrats' class warfare was stagflation high inflation and high unemployment.

Ronald Reagan put incentives back into the economy, and the economy has boomed ever since. Bill Clinton and Al Gore benefited politically from the Reagan Economy after President Bush disassociated from Mr. Reagan's supply-side policy and threw away a second term.

Republicans let the economic issue slip out of their hands, because they don't understand economics. They understand how to be good managers, how to run the government more efficiently and waste less money. But they do not understand economics. Republicans could not claim credit for the Reagan Economy, because they were embarrassed by the budget deficits. Republicans regarded the deficit as a stain on their honor. Despite overwhelming evidence to the contrary, Republicans were convinced the budget deficit would re-ignite inflation and choke the economy with high interest rates.

Instead of taking pride in the low-inflation, high-growth economy the likes of which Americans had not seen in their lifetimes Republicans publicly wrung their hands year after year. Instead of marveling over the long-term rise in employment and the long-term decline in inflation and interest rates, Republicans saw doom around the corner.

The Republican Party talked itself out of the credit for America's economic rejuvenation. All a smoothie like Mr. Clinton had to do was to grab the credit the Republicans had discarded.

It was not the deficit itself that undid the Republicans, but their idiotic concept of it. Republicans believe budget deficits force up interest rates and that the rise in interest rates chokes off investment. For Republicans, deficit spending increases consumer demand but reduces investment, thus causing inflation.

The Treasury Department repeatedly examined the empirical evidence. The evidence showed that the budget deficit was not the primary influence on interest rates and that the interest rate was not the main influence on investment. But it did not do any good. The Republican Party campaigned against the deficit for so many years that the party has ceased to think.

If deficits mean high interest rates, budget surpluses should mean low interest rates. But U.S. interest rates have been rising during this period of budget surpluses. Obviously, Republican "deficit economics" has served the party poorly. Democrats are better at politics, but their brand of deficit economics has not worked either. According to Democrats, deficit spending is essential to ward off unemployment.

Why then are budget surpluses and full employment cohabiting happily? The answer is that both parties have overemphasized budget deficits, which are a result, not a cause. The economy is doing well, because Mr. Reagan threw out the old economic policy and replaced it with a new one. The old policy used easy money to pump up demand and relied on high tax rates to restrain inflation. The old policy failed. High tax rates restrained production, and easy money caused inflation. Mr. Reagan's supply-side policy put incentives back into the economy to stimulate production and relied on monetary restraint to control inflation. This policy was made in Washington, and Mr. Cheney should have claimed Republican credit for it.

Paul Craig Roberts is a columnist for The Washington Times and is nationally syndicated.